Income Tax Bill, 2025: A pivotal step towards making law accessible

The finance minister tabled the Income Tax Bill, 2025, in Parliament on Thursday. The government needs to be lauded for achieving the twin feats of  i) making the existing law concise, lucid, and ii) easy to read and understand. 

Whilst drafting the proposed law, the government has particularly focused on not changing the key words/ phrases, which have been interpreted by courts, thereby removing the scope for future interpretation. 

With an endeavour to smoothen the transition period, the government has proposed that the new law will be effective from April 1, 2026. This will give various taxpayers and tax professionals sufficient time to familiarise themselves and be ready for its implementation. 

Architectural framework of the Bill   Over the years, the existing law has been amended 65 times, incorporating more than 4,000 amendments, making it bulky. The proposed Bill will i) reduce the existing 819 sections by one-third to 536, ii) reduce the total length by half to 260,000 words. This will quintessentially cut the flab in the existing Act. 

The traditional style of drafting the law has led to enormous tax litigation over the past six decades. Hence, the Bill has been drafted in a non-conventional way in the form of tables and formulas to make the interpretation simpler and reduce fresh litigation. 

For example, when it comes to tables, i) TDS provisions, which are currently spread over tens of sections, have been clubbed together in a single table, ii) various deductions for salaried individuals have been clubbed under a single table etc. This is likely to significantly reduce the rigour to analyse and interpret the law. 

Some of the examples wherein the law has been simplified by replacing the verbatim language of complex provisions with simplified formula-based explanations are: Computing mechanism for written-down value (WDV) of block of assets, capital gains, interest, advance tax, etc. 

The existing Act contains numerous cross-references (like deduction provisions for charitable trust/ institutions) across sections and sub-sections, making the interpretation a challenge. The Bill has curtailed the cross-referencing by re-arranging the sections and making the referencing simple. 

Some salient features of the Bill 

The Bill proposes to replace the concept of assessment year and previous year with an easy-to-understand ‘tax year’. This change will make it specially easier for foreign taxpayers to understand the Indian law, as the ‘tax year’ is in line with the global concept of taxation. 

Under the Bill, the Dispute Resolution Panel is mandated to pass directions along with detailed reasons. This is likely to improve the quality of the directions and reduce tax litigation. 

The existing Act does not allow nil /lower TDS certificates for all types of payments. However, the proposed Bill allows lower TDS certificates for all types of payments. 

From an international tax perspective, with an endeavour to reduce litigation, the Bill has provided that any term used in the tax treaty and not defined there or in the domestic tax law can be clarified by the central government, and such meaning shall be applicable with effect from the date of the tax treaty. Now, whether this amendment opens some fresh litigation on the meaning of a few terms remains to be seen. 

Overall, the government has done a commendable job in meeting its stated objectives in line with its long-standing policy of bringing certainty and ease in tax procedures. The Bill will now be referred to a Parliamentary select committee to be constituted by the speaker of the Lok Sabha. It will be interesting to see the final form and shape in which this Bill sees the light of day. 

The writers are partners at Price Waterhouse & Co LLP